5Things VC Investors Should Know About Bitcoin

Peter Vessenes, the chairman of the Bitcoin Foundation and founder of U.S. venture-backed bitcoin company CoinLab Inc., shared some tips with private-equity and venture-capital investors on how to invest in the mysterious world of bitcoin, a virtual currency created in 2009 that some merchants have begun to accept as payment.

Speaking at the European Private Equity and Venture Capital Association conference in Vienna, Mr. Vessenes said that there had been about $500 million of investment in the “bitcoin space” globally since its inception in 2009.

As well as giving away $100 worth of bitcoin to one audience member, Mr. Vessenes shared some tips for investors in the digital currency.

1Bitcoin does for money what the Internet did for publishing

While some people view bitcoin as a crypto-currency or wealth store (even a religion), Mr. Vessenes described bitcoin as an asset class. He said it is a “distributed trust technology” where trust in a currency is no longer bound to a central bank, but across the Internet and via peer-to-peer networks instead. Bitcoin “does for money what the Internet did for publishing,” said Mr. Vessenes.

2Bitcoin allows investors to innovate

Mr. Vessenes said service providers including Blockchain and Bitstamp are among a growing number of innovative companies harnessing the power of bitcoin, and that these sorts of companies create opportunities for venture-capital investment.

3Set up your partnership agreements to be able to hold bitcoin

“When I was first pitching to VCs many said that they couldn’t invest,” Mr. Vessenes recalled. But privately they would often then ask him where how they could acquire some bitcoin for themselves. Now Silicon Valley-based venture capital fund managers have amassed personal holdings in the asset class and are changing their partnership agreements and fund documentation to allow for the inclusion of bitcoin, and European firms should do the same, according to Mr. Vessenes.

4Make sure the bitcoin companies you invest in are long ...

…And make sure they stay long, Mr. Vessenes advised. He encouraged venture-capital firms to invest in companies that hold bitcoin themselves and do not exchange their bitcoins for conventional money to ensure their interest is aligned interest in the continued performance of the digital coinage.

5By 2130 there will be no more bitcoins issued

The deflationary approach to bitcoin issuance–the number of bitcoins created will slowly decrease until 2130 when it is due to cease–means that there is a finite limit to the amount that can be produced. So get in there quick.